The US Federal Reserve on Wednesday made no change in the benchmark interest rate and downplayed recent weak economic growth, a signal it likely will remain on course for gradual rate hikes.
The Fed’s policy-setting Federal Open Market Committee voted unanimously to keep the federal funds lending rate in a range of 0.75-1.0 percent, just as most analysts had expected.
The statement explaining the decision seems to strengthen the prospect of two more increases this year, likely at the June and September meetings.
The FOMC statement said the tepid growth in the first quarter — when GDP expanded by only 0.7 percent, the slowest in three years — was a one-time issue, while emphasizing the continued strong labor market and solid hiring.
“The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace.”
“The labor market has continued to strengthen even as growth in economic activity slowed,” the statement said, with “solid” job gains and another decline in the unemployment rate, which now sits at 4.5 percent.
The central bank raised rates in March and December, given steady job creation and some signs of mounting price pressures — and amid the wave of optimism in the early days of President Donald Trump’s term, with his promises of tax cuts and big infrastructure spending.
Many economists also discounted the weak first quarter, which was held down by lower consumption, as an anomaly frequently seen in the first three months of the year.
The Fed statement said while household spending has risen only modestly “the fundamentals underpinning the continued growth of consumption remained solid.”
Meanwhile, 12-month inflation has held close to the Fed’s two percent target, even while some price measures declined in March.
Inflation figures released Monday showed the Fed’s preferred measure of inflation — known as PCE — actually retreated and remains below two percent, while a key component of the index declined for the first time in 16 years.
A minority of economists predicted the central bank might be less aggressive in raising interest rates, and wait until September before moving again.
But the Fed gave no hint of a pause in its statement, repeating the line that has been in all of its recent declarations: “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate.”
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